2016 July | Exchange Accountancy Services

Archive for July, 2016

Buy-to-let landlords expenses

Thursday, July 28th, 2016

When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income. The expenses must also be revenue, rather than capital expenses.

Common types of expenses you can deduct if you pay for them yourself are:

  • general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
  • water rates, council tax, gas and electricity
  • insurance – landlords’ policies for buildings, contents and public liability
  • interest on a mortgage to buy the property
  • costs of services, including the wages of gardeners and cleaners
  • letting agent fees and management fees
  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  • accountant’s fees
  • rents (if you’re sub-letting), ground rents and service charges
  • direct costs such as phone calls, stationery and advertising for new tenants
  • vehicle running costs (only the proportion used for your rental business)

Expenses you can’t claim a deduction for include:

  • the full amount of your mortgage payment – only the interest element of your mortgage payment can be offset against your income
  • private telephone calls – you can only claim for the cost of calls relating to your property rental business
  • clothing – for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm – no identifiable part is for your property rental business
  • personal expenses – you can’t claim for any expense that was not incurred solely for your property rental business

Claiming part expenses

You might incur a cost where only part of it is expense for your property rental business. If a definite part of a cost is expense incurred wholly and exclusively for the property business, you can deduct that part. For example, if a property is used for private purposes for 3 months and commercially let for 9 months, then 9/12ths of the mortgage interest can be deducted from the rental income.

Do not forget to pay your tax

Wednesday, July 27th, 2016

The 31st July is rapidly approaching. If you are registered for self-assessment, make sure you pay the second instalment for 2015-16, that falls due on this date, unless no payment is due.

If you are self-employed, and if you are confident that your profits have fallen in the accounts year to 31 March 2016, compared to 2014-15, then you may be able to make an election to reduce the payment on account due in two weeks’ time. Any downward adjustment in tax payable must be based on realistic calculations as HMRC will take a dim view if your tax return for 2015-16, when filed, shows that your downward adjustment in your July payment was excessive.

We can help.

If the amount of tax due cannot be disputed, but you are unable to make the payment due to cash flow difficulties, contact HMRC now to discuss your options. Very often, HMRC will agree to a direct debit instalment plan or otherwise give you more time to pay. It is important that you contact the tax office before the end of the month; in this way you can reduce the possibility of penalties for late payment. Unfortunately, HMRC will still charge you interest on unpaid tax – the current rate charged is 3%.

There are a number of ways you can pay the tax.

HMRC should have sent you a Statement showing what you owe on the 31 July. Simply fill in the payment slip at the bottom of the form and take it to your bank with a cheque before the end of the month. Don’t forget to allow enough time for the cheque to clear before the 31st.

Alternatively, you could pay by online or telephone banking. The bill will tell you which account to pay into. It will generally be one of two offices:

  1. HMRC Cumbernauld: sort code 08 32 10, account number 12001039, or
  2. HMRC Shipley: sort code 08 32 10, account number 12001020.

HMRC will also accept payments by debit or credit card. You will need to use HMRC’s online payment portal at https://www.tax.service.gov.uk/pay-online/self-assessment.

Why record business mileage

Tuesday, July 26th, 2016

If you are self-employed, either as a sole trader or in partnership, and you use a business vehicle for private purposes, HMRC will seek to disallow any motoring costs, petrol etc., and capital allowances based on the purchase cost of the vehicle, to cover the private use proportion.

The only practical way that you can do this is to record your car mileage at the beginning and end of your trading year, to ascertain the total miles for the period, and a log of your business miles.

At a minimum, you should be able to provide evidence of total annual mileage and a detailed record of business mileage for the same period. The log should include the following information:

  • Date of the business use
  • The address you were attending and the round trip mileage
  • The reason for the trip

This could be recorded in a diary kept in your car or by using one of the multitude of Apps now available for this purpose.

Armed with this information, any disallowance of running costs and capital allowances will be fairly based and not some arbitrary figure dictated by HMRC. Estimates will not cut muster with the tax office, you will need to back up numbers with evidence.

If you are employed, have the use of a company car, and your employer pays all of your petrol, including that used privately, then you will be subject to the car fuel benefit charge. The only way to avoid this tax charge is to repay your employer for petrol used privately. To do this you will need to keep a log of all private journeys. At the end of each tax year, or periodically during the tax year, you should multiply the private use miles by the approved car fuel rate – this can be accessed from the HMRC website at https://www.gov.uk/government/publications/advisory-fuel-rates. Just multiply the private use miles by the appropriate rate per mile and pay this amount to your employer.   

 If you want your motoring costs fairly apportioned for private use, you will need to keep a mileage log.

Interest rates to fall

Tuesday, July 19th, 2016

In the immediate fall-out after the Brexit vote it was rumoured that interest rates would fall when the Bank of England Monetary Policy Committee (MPC) met on the 13th July. Following the meeting, Mark Carney announced that interest rates would be held at 0.5%.

However, the minutes of the July 13th MPC meeting make it clear that at their next meeting on the 6th August, interest rate reductions or other easing of monetary policy may be on the cards. The minutes say:

“The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expect monetary policy to be loosened in August. The Committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”

In other words, the expected fall in rates to say 0.25%, may well happen next month.

If rates do fall this is great news for borrowers, who can expect fixed rate mortgages to be offered at more favourable rates.

It will be bad news for savers. In fact, as the indications of a rate fall are fairly strong, it may pay to take advice and consider your options. National Savings and the High Street banks are already adjusting rates in a downward direction in anticipation of rate falls next month. Perhaps time to take a look at fixed-rate savings bonds?

15% corporation tax

Wednesday, July 13th, 2016

George Osborne has floated the idea that the UK could reduce corporation tax to 15% or lower in an attempt to make the UK the place to do business. By making this surprise announcement at the beginning of the month, he will no doubt have in mind the many larger institutions that are reconsidering a move from London to other EU financial centres following Brexit.

 There are concerns that this could, if implemented, produce a race to the bottom, as other countries try to out-compete the UK rates.

 The present 20% corporation tax rate is already scheduled to reduce in the coming years. The present timetable of reductions is:

  • From 1 April 2017 reducing to 19%
  • From 1 April 2020 reducing to 17%

Of greater concern, certainly for smaller businesses, is maintaining profitability in the coming years as the UK adjusts to a new alignment with the EU and the rest of the world. Uncertainty is likely to be a constant companion at our board meetings until the post Brexit changes are completed.

 Businesses would be best advised to observe basic good housekeeping:

  • Tighten credit control,
  • Maintain liquidity,
  • Reconsider investment decisions that are unlikely to have an immediate, positive impact on profitability,
  • Rewrite budgets and make sure monthly financials are reviewed.

Anchoring larger, mostly financial institutions to UK residency in the hope of minimising any down-side losses to the UK economy, whilst laudable, does not necessarily help small business owners – if they are unable to make profits a reduction in tax rates at some future date is largely irrelevant.

 It will be interesting to see if George Osborne, or his successor, come up with Band-Aid policies for smaller business development in the coming months.

Business as usual

Tuesday, July 12th, 2016

The hiatus continues. Both major political parties are locked into leadership issues and until these are resolved it is difficult to see in which direction the UK will take. Apparently, the present government, with its new leadership team, will continue until the next scheduled general election, 7 May 2020.

George Osborne’s last budget, March 2016, is still working its way through parliament and we can expect this process to complete once the report stage is finished and the bill receives Royal Assent. No doubt the new incumbents will consider a further finance bill later this year to smooth the way for Brexit?

 Meanwhile, we are faced with two dilemmas:

  • When will we formally separate from Europe and what continuing trade agreements will we secure with the EU?
  • What trade agreements will we secure with the rest of the world?

 It is encouraging to see that the present government are not entirely inactive in this regard. The Business Secretary, Sajid Javid, has kicked off preliminary trade talks with India this month, and there are further, tentative talks organised with the USA, China, Japan and South Korea.

The Business Secretary Sajid Javid said:

“Following the referendum result, my absolute priority is making sure the UK has the tools it needs to continue to compete on the global stage.

That is why I am in India today to launch these initial trade discussions. There is a strong bilateral trade relationship between our 2 countries and I am determined that we build on this.

Over the coming months, I will be conducting similar meetings with other key trade partners, outlining the government’s vision for what the UK’s future trade relationship might look like.”

As part of the discussions, the Business Secretary is expected to make clear that he would like the UK and India to have a trade agreement in place as soon as possible after the UK leaves the EU.

So we are not without leadership. Meanwhile, now would be a good time to consider, and reconsider, investment options for small businesses across the UK while we wait for the wider trade negotiations to complete.

Changes to business market place post Brexit

Wednesday, July 6th, 2016

While we wait for the politicians to sort themselves out it may be prudent to reflect on the likely changes to the business market place post Brexit. For example:

  • If the sterling exchange rate settles at a lower level the cost of imported goods will rise and our exporters may benefit as their goods and services will be priced lower in overseas buyer’s markets.
  • If the rising cost of imports triggers inflation the Bank of England may have to step in and increase interest rates. This will increase the cost of borrowing; business profits will suffer as will cash flow.
  • An alternative scenario is also possible. The Bank of England may reduce interest rates to encourage investment and lower the cost of borrowing for UK businesses and home owners.
  • Firms that trade in the property sector will need to keep a weather eye on demand as buyers may be discouraged by the overall uncertainty about the longer term outlook for interest rates. As a consequence, we may see the property market flat-line or prices fall.
  • Uncertainty may encourage banks and other lenders to be more cautious when considering loans. Cash flow management should possibly shift towards the top of to-do lists, just in case there is downward pressure if credit does tighten up.
  • Businesses and non-profit making enterprises that rely on EU funding should contact their funding agencies as soon as possible. Be prepared. Start looking for alternative funding now. Support for farmers and other key groups will hopefully be replaced by UK government grants.
  • Businesses that trade with the rest of the EU will need to re-examine their sales and marketing strategy for the future. If and when the final EU curtain falls they may find their exports subject to tariffs. Time to start looking for alternative export markets or ways to increase penetration in the home market.
  • Firms that are part of the supply chain for multinational concerns will need to be vigilant. Car manufactures, pharmaceutical companies, international banks and others, that have based their operations in the UK as a spring board to the EU markets, could possibly reconsider their options.  
  • If consumer demand in the UK hardens, the ability to pass on increased costs may become a problem for smaller businesses already coping with smaller margins and shrinking demand for their products and services.
  • Finally, we may have face tax increases as the UK struggles to balance its books and repay debt.

Businesses will need to be on their guard. Businesses and individuals should be watchful and stay positive. There are small business owners who would say that they were held back by EU regulation and will now be free to explore alternative markets. There are others that will be concerned by any loss of access to European markets. In any event, it pays to trim your sails if a storm is forecast, even if it blows over.

Tax Diary July/August 2016

Monday, July 4th, 2016

 1 July 2016 – Due date for Corporation Tax due for the year ended 30 September 2015.

 6 July 2016 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs, and give copies of the information to your employees.

 19 July 2016 – Pay Class 1A NICs (by the 22 July 2016 if paid electronically).

 19 July 2016 – PAYE and NIC deductions due for month ended 5 July 2016. (If you pay your tax electronically the due date is 22 July 2016)

 19 July 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2016.

 19 July 2016 – CIS tax deducted for the month ended 5 July 2016 is payable by today.

 1 August 2016 – Due date for Corporation Tax due for the year ended 31 October 2015.

 19 August 2016 – PAYE and NIC deductions due for month ended 5 August 2016. (If you pay your tax electronically the due date is 22 August 2016)

 19 August 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2016.

 19 August 2016 – CIS tax deducted for the month ended 5 August 2016 is payable by today.

Bogus emails and now, bogus phone calls

Monday, July 4th, 2016

The “phishing” emails sent by nefarious individuals, purporting to be from HMRC, have now been joined by bogus phone calls.

We have received information that taxpayers are being called, apparently by HMRC, and advised that they have significant tax bills to pay and the caller encourages the offended taxpayer to settle the bill during the phone call.

We have reproduced below a warning issued by Action Fraud involving the use of iTunes gift cards:

Action Fraud is warning people of a new trend that has hit the UK where fraudsters contact victims claiming to be from HM Revenue & Customs (HMRC) and trick them into paying bogus debts and taxes using iTunes gift cards. 

Victims are being contacted in a variety of methods by fraudsters claiming to be from HMRC and are told they owe an outstanding debt. In the hundreds of cases reported to Action Fraud in the past month, the fraudsters all ask for payment in iTunes gift card voucher codes. 

Fraudsters are now moving onto iTunes gift cards to collect money from victims because they can be easily redeemed and easily sold on. The scammers don’t need the physical card to redeem the value and instead get victims to read out the serial code on the back over the phone. 

Fraudsters are contacting victims in three ways:

  • Voicemails: Fraudsters are leaving victims automated voicemails saying that they owe HMRC unpaid taxes. When victims call back on the number provided, they are told that there is a warrant out in their name and if they don’t pay, the police will arrest them.
     
  • Spoofed calls: Fraudsters are cold calling victims using a spoofed 0300 200 3300 number and convincing them that they owe unpaid tax to HMRC. 
     
  • Text messages: Fraudsters are sending text messages that require victims to urgently call back on the number provided. When victims call back, they are told that there is a case being built against them for an outstanding debt and they must pay immediately.  

How to protect yourself: 

  • HMRC will never use texts to tell you about a tax rebate or penalty or ever ask for payment in this way.
  • Telephone numbers and text messages can easily be spoofed. You should never trust the number you see on your telephones display. 
  • If you receive a suspicious cold call, end it immediately.

You can also report a fraud and receive a police crime reference number, call Action Fraud on 0300 123 2040.

Transferring ISAs

Monday, July 4th, 2016

ISA investors may be interested to read the following guidance issued by HMRC regarding the transfer of ISAs from one provider to another.

What you can transfer

You can transfer a cash ISA to another cash ISA with a different provider. You can do the same with stocks and shares ISAs. You can also transfer a cash ISA to a stocks and shares ISA or vice versa.

If you want to transfer money you’ve invested in an ISA this current year, you must transfer all of it. For previous years, you can choose to transfer all or part of your savings.

Check with your provider for any restrictions they may have on transferring ISAs. They may also make you pay a charge.

How to transfer your ISA

To switch providers, contact the ISA provider you want to move to and fill out an ISA transfer form to move your account. If you withdraw the money without doing this, you won’t be able to reinvest that part of your allowance again.

Deadlines and complaints

ISA transfers should take no longer than:

  • 15 working days for a cash ISA
  • 30 working days for a stocks and shares ISA

If your transfer takes longer than this, contact your ISA provider. If you’re unhappy with the response, you can take the matter up with the Financial Ombudsman Service.

Financial Ombudsman Service
Telephone: 0845 080 1800
Monday to Friday, 8am to 8pm
Saturday, 9am to 1pm